What’s Inside

I’ve spent years trading short-term interest rate futures, and when SOFR futures launched on CME, I was skeptical at first. But after hundreds of trades, I can tell you – 1 month SOFR futures (ticker SR1) are now my go-to for cheap, liquid exposure to the front end of the curve. No fluff, just what you need to know.

What Are 1 Month SOFR Futures?

1 month SOFR futures are cash-settled futures contracts based on the Secured Overnight Financing Rate (SOFR), the benchmark that replaced USD Libor. They trade on CME Globex, and each contract reflects the arithmetic average of daily SOFR prints over a calendar month. Unlike Fed Funds futures that track a daily effective rate, SR1 captures the realized compounded SOFR – a subtle but crucial difference.

These contracts are the workhorses for hedging short-term borrowing costs, speculating on Fed rate decisions, and arbitraging with other money market instruments. The liquidity is massive – daily volume often exceeds 100,000 contracts – and the bid-ask spread is typically just 0.5 ticks.

Personal take: When I first started trading SR1, I underestimated the impact of weekend SOFR prints on the monthly average. During a Fed meeting month, a single day’s outlier can shift the whole contract. I learned to model the remaining prints explicitly.

CME SR1 Contract Specs (Cheat Sheet)

Field Value
Underlying 30-day average SOFR (compounded)
Ticker SR1 (CME Globex)
Contract Size $1,000,000 face value
Price Quotation 100 – (average SOFR rate × 100)
Minimum Tick 0.005 points = $12.50 per contract
Last Trading Second business day before first calendar day of reference month
Settlement Cash settled (final price = 100 – (realized SOFR avg × 100))
Trading Hours CME Globex: Sunday 5pm – Friday 5pm ET (daily break 5pm–6pm)

One nuance: the minimum tick of 0.005 might seem tiny, but at $12.50 per tick, a 1bp move (0.01) costs $25. Scalpers love this granularity.

How Pricing Works – The Math Behind It

The market price of a 1 month SOFR future implies the rate traders expect to realize. For example, if SR1 trades at 98.50, that means the market is pricing an average SOFR of 1.50% for the contract month (100 – 98.50 = 1.50). But here’s the trap: the actual settlement depends on the daily compounded average, not a simple average. Since SOFR can be volatile on month-end or when Treasury general collateral is tight, the final print often diverges from the implied rate by a few basis points.

Real-world example: In December, I saw SR1 trading at 98.70 (implying 1.30%). But with year-end repo stress, SOFR spiked to 1.50% for three days. The final average landed at 1.38%, and the contract settled at 98.62. I made 8 ticks by being long when others overestimated the spike.

Pricing also reflects the term premium over SOFR. Because SR1 is a futures contract, it embeds the cost of carry and expectation of Fed action. Unlike overnight index swaps, SR1 has a convexity adjustment for the compounding effect, but it’s negligible for 1-month tenors

3 Proven Trading Strategies

Strategy 1: Fed Meeting Month Carry Trade

In months where the FOMC meets, the SOFR average gets a mechanical boost if rates are hiked. I front-run the meeting by going long SR1 before the decision, expecting the post-meeting higher rates to lift the month’s average. Crucial: only do this when the market hasn’t fully priced the hike.

Strategy 2: Calendar Spread Arbitrage

Trade the spread between consecutive months (e.g., SR1 Jan vs SR1 Feb). When the curve is steep, you can capture the roll-down. I look for dislocations during early month roll periods when liquidity shifts.

Strategy 3: Relative Value vs Fed Funds Futures

Since Fed Funds futures (ZQ) track a different rate, the basis between SR1 and ZQ can widen during stress. During the 2023 debt ceiling, the basis hit 8bp. I short the basis when it’s extreme and wait for mean reversion.

Common Pitfalls Even Vets Miss

  • Ignoring weekend/holiday SOFR prints: The month’s average includes every calendar day. A three-day weekend means rate is printed only once? No – SOFR publishes a rate each business day, but weekends are not included. Actually, SOFR publishes on business days only, weekends and holidays are not printed. But the average takes the rate for each calendar day by using the most recent business day's rate. Many traders fail to account for this when projecting the final average.
  • Confusing SR1 with SOFR futures 3-month: The 3-month contract (ticker SR3) uses a compounded average over 3 months, and its tick value is different. Don’t mix them.
  • Overlooking month-end window dressing: Banks often reduce repo activity at quarter-end, causing SOFR to drop. I check the calendar before entering a position.

FAQ – Your Burning Questions Answered

How do I calculate the P&L for a 1 month SOFR futures trade?
Each 0.005 tick equals $12.50. If the price moves from 98.50 to 98.60 (10 ticks), that's $125 per contract. Simple: (final price – entry price) / 0.005 × $12.50. Commission and slippage rarely exceed one tick.
Why does the price sometimes not match the implied SOFR rate?
Because the final settlement uses the geometric average of daily SOFR prints compounded across all calendar days (including weekends using the previous business day's rate). The market price embeds expectations for each day, and any surprise in daily prints – especially on month-end – can deviate the final. I always compute the “remaining days average” to spot mispricing.
Can individual retail traders profit from 1 month SOFR futures?
Yes, if you have futures-enabled account. The margin is low (around $500 per contract). But beware: the market moves in 0.005 increments, and algos dominate. I suggest starting with small positions and focusing on calendar spreads to reduce directional risk.
What’s the best time of day to trade SR1?
The most liquidity is during US trading hours (8am-12pm ET) and around the 2pm SOFR fix. Avoid the first 30 minutes after Globex open (6pm ET) unless you like wide spreads.

*This article reflects my personal experience and market observations. Always do your own research before trading.